Dividend Yield & Dividend Payout

Dividend Yield & Dividend Payout

Formulas

$$\text{Dividend yield} = \frac{\text{Annual dividend per ordinary share}}{\text{Market price per ordinary share}}$$ $$\text{Dividend payout} = \frac{\text{Total dividends to ordinary shareholders}}{\text{Profit after tax and extraordinary items} - \text{Preference dividends}}$$

Explanation

• Dividend yield: cash return (dividend) on the current share price.
• Payout ratio: what percentage of earnings is paid out as dividend, instead of being retained.

Satisfactory level

• Income-focused investors like higher dividend yield and higher payout.
• Growth companies keep more profit, so lower payout but maybe higher future growth.

Industry norm

• Mature utilities / banks: often higher payout.
• Tech / growth firms: often low payout, reinvest profits.

Example

• Dividend per share = RM0.10
• Market price = RM4.00

$$\text{Dividend yield} = \frac{0.10}{4.00} = 2.5\%$$

• Dividends to ordinary shareholders = RM200,000
• Profit available to ordinary shareholders = RM700,000

$$\text{Payout} = \frac{200,000}{700,000} \approx 28.6\%$$